KLCC’s FY23 results met our expectations but surprised with higherthan-expected distributions. It experienced growth in its core businesses, particularly, management services and the hotel segment. We maintain our FY24F earnings forecasts, raise our TP by 3% to RM8.00 (from RM7.73) and maintain our OUTPERFORM call.

KLCC’s FY23 core net profit of RM709.4m met our forecast but missed the consensus estimate by 6%. That said, it declared a final DPU of 14.4 sen (full-year FY23: 40.5 sen at 92% payout) which beat our expectation of 36.3 sen for FY23.

YoY, its FY23 revenue of RM1.62b grew by 11% largely due to its: (i) hotel operations (+44%) with higher occupancy of 66% from international guests, that were mainly from China, Singapore, and UK, and (ii) management services (+20%) as car park income increased from the higher footfall within its portfolio. On the flipside, operating margins eased to 63.0% (-2.7ppts) as utilities and maintenance costs picked up across all segments. With the inclusion of a RM221.9m revaluation gain, FY23 net profit came in at RM931.3m (+19%). Adjusting for these gains, core net profit would otherwise come in at RM709.4m (+9%).

QoQ, its 4QFY23 revenue increased by 10%, primarily driven by increased car park income along with the expansion of facilities management scope, and higher occupancy and room rates at Mandarin Oriental. Profit before tax increased by 93% from the fair value adjustments typically registered in the 4QFY periods, leading to a significant increase in its net profit to RM384.6m (+108%). Adjusting for this, core net earnings would come in at RM162.7m, which marks a 12% decline owing to higher operating costs incurred during the period.

Outlook. With businesses now surpassing pre-pandemic levels, we foresee a promising outlook for the upcoming quarters. YoY, its retail footfall climbed by 30%, suggesting that consumer spending remains strong. We opine its forward earnings will continue to be supported by: (i) the office division’s high occupancy rate (100% at end-Dec 2023, given its long-term, locked-in leases with high-quality tenants), (ii) the retail division’s 10 new tenants that increased the mall’s occupancy rate during 4QFY23, (iii) the hotel operation’s occupancy ratio picking up (55% from 52% in 3QFY23), as well as (iv) the management services’ improved performance during the quarter with the rise in transient (+7% YoY) and season car park customers (16% YoY). Concurrently, the group has expressed interest in exploring global assets to add to its portfolio but prioritizing the enhancement of local operations, while also considering venturing into the healthcare sector.

Forecasts. Our FY24F earnings are largely unchanged. Meanwhile, we introduce our FY25F numbers.

Valuations. We raise our TP to RM8.00 (from RM7.73) as we roll over our valuation base year to FY25F with a DPU of 44.0 sen. This is against an unchanged target yield of 5.5% (derived from a 1.5% yield spread above our 10-year MGS assumption of 4.0%). Our distribution is based on a 95% payout, in line with historical averages

Source: Kenanga Research - 8 Feb 2024